Ch 12 Cost of Capital
Why Cost of Capital Is Important
• Weknowthatthereturnearnedonassets depends on the risk of those assets
• Thereturntoaninvestoristhesameas the cost to the company
• Ourcostofcapitalprovidesuswithan indication of how the market views the risk of our assets
• Knowingourcostofcapitalcanalsohelp us determine our required return for capital budgeting projects